522 Economic Analysis
MBA Solved Assinment No 1 Question 4 Helping Material

Differentiate between monopoly and oligopoly with examples.

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The business world is full of words ending in -opoly. Many people know what monopoly means; it was the basis for a popular board game and high-profile antitrust lawsuits, after all. Oligopoly is another word that is common in business, though with which not quite as many people are familiar. This article will explore some differences and similarities in monopolies and oligopolies, as well as some of their benefits, considerations and examples.


·         A monopoly, as many people know, is a market condition in which only one vendor (usually a large corporation) is in play. There may be other somewhat similar businesses, but a monopoly exists when only one business or individual can provide a product or service. In an oligopoly, the product or service may be available from more than one vendor or merchant, but only a few big players dominate the market and make competition very difficult for new entries in the field.


·         Examples of monopolies are difficult to produce, as federal antitrust regulations prohibit monopolistic market conditions in the United States. Regardless of legal issues, though, monopolies do exist, primarily in the utilities market. Electricity, for example, is generally available from only one "electric company" in any given market. Water and cable television are equally exclusive. During the 1990s, Microsoft commanded such a large portion of the computer operating system environment, and demonstrated such a propensity to absorb upstart competitors, that it was believed to be a monopoly as well.

Examples of oligopolies are considerably more plentiful. The automotive industry, for example, has many competitors but is dominated by General Motors, Ford, Chrysler, Honda, and Toyota. Breakfast cereal is also such an excellent example of oligopoly that it is often used in teaching the concept to Junior Achievement students; while the market is open to many competitors, almost all breakfast cereal -- in the United States, at least -- is manufactured by General Mills, Post or Kellogg.


·         While monopolies and oligopolies are representative of considerably different market conditions, they do bear some important similarities. Consumers are at a distinct price disadvantage in both conditions, as prices for products are dictated by a single company in a monopoly environment and commanded by only a few select merchants in an oligopoly condition. Selection is similarly limited as products are designed and offered by a very limited consortium in both arrangements.


·         Despite their similarities, there are some distinct differences between monopolies and oligopolies. While a monopoly does severely restrict consumer choices, oligopoly conditions do allow for some competition among the major players. This competition can even induce price wars, as has been demonstrated by fast-food giants, automotive manufacturers and even cola companies. The most significant difference, however, is that oligopolies are a common market condition while monopolies are forbidden under federal regulations.


·         Oligopolies and monopolies, for all their similarities and differences, both dictate a considerable market disadvantage for consumers. In both environments, consumers have little choice but to buy the products or services offered by the one or few companies and complete the transaction at whatever price was set by the organization. An ideal free market economy, the type commonly associated with capitalism, puts the consumer in charge by eliminating the influence of major monopoly or oligopoly players.